NFTRH Update 5.1.13, Extended Market Review

Gold Stocks

Here is the updated chart from yesterday’s update, which shows how HUI finished yesterday. It is still in a potential bear flag, but one which ultimately held to live another day in its struggle to prove it is not a bear flag this time, unlike all the others.

hui
HUI daily

My question is how long should people continue to micromanage this index, which has done nothing but hurt people (except those in cash or actively bearish) for 7 solid months now? I currently hold AAU, AKG, EMXX, GG, PVG, RIOM, SAND and TGD. I like these stocks for a rally, but hate them if HUI is in a bear flag. I’ll have no problem dumping every last one of them if that is what is called for.

I’ll also have no problem going leveraged short the miners, gold and/or silver again if that is what is called for. This could be initiated against long positions (with gold itself being the ultimate long position) to hedge or it may simply be done for a trade opportunity because the technicals say so. After all, how long can we look at a chart like this without questioning whether “Bernanke Wins” and Keynesian monetarists win, at least for a longer phase than expected or comfortable for the gold “community”?

hui.spx
HUI-SPX ratio, monthly

The monthly HUI-SPX ratio would have us believe that gold stocks have gone into not just a cyclical bear market vs. regular stocks, but potentially a long-term one. There comes a time when people who have been very right for a decade might realize that their own over confidence and hubris may cloud their viewpoints. I work hard to make sure I am not one and NFTRH does not promote what it thinks it knows, but rather what is.

What is is a bear market of some kind in gold, silver, gold stocks and their ratios to the US stock market, which has been the recipient of the benefits of inflationary actions to date. It is a phase, but an open question is how long will the phase last? I have not recommended sticking to your guns and going down with the precious metals ship over the last half a year and while analysis like this post could be turned into a contrary indicator at any point, managing risk against bearish technicals has been a good path for a long time now, and I for one am not ready to abandon it.

When the sector proves something to me, the analysis will change. But not until.

Broad Market

So where does that leave us in the broad picture? This is still unclear. I believe we are managing a top of some kind, whether mini (SPX 1350-1450 for a healthy correction) or maxi (a new cyclical bear market (taking out SPX 1350). But folks, after being bullish from May, 2012, I am well aware that I did not personally manage the current cycle to personal benefit.  And what benefit I did realize was eaten up by the hard labor in the precious metals sector.

But what is important is what is ahead. As you may have noted, the model portfolio holds positions in Singapore, Indonesia, general Asia and emerging markets. This represents a creep back to the bull side of the boat. It helped that some of these items corrected prior to being bought.

Once again, I’ll remind you that biiwii stands for ‘but it is what it is’ and with regard to my use of that common phrase, the site was so-named in large part because of my decision to fight my innate bearish bias in 2003 and get bullish because bullish is what was happening in the markets; inflation-fueled bullishness though it was.

So the analysis remains on guard to this day in the event a bearish bias is incorrect. You will note that various individual stocks have come and gone in the portfolios and recently, a couple items in the manufacturing sector have been traded. What is hard to reconcile is a very bearish immediate term viewpoint on the broad market while finding charts like these.

faro.ddd
FARO top, DDD bottom, daily charts

Faro as you know is a company I had dealings with in my previous life in the US manufacturing sector. While I never dealt directly with 3D Systems, I have been very familiar with 3D printing for a decade now. Imagine mechanical parts being ‘printed’ from CAD models. Very cool.

The point is not to hump these two stocks. Please, there is a world full of good companies out there and I have not done what a serious investor would call DD on these items. The point is to illustrate that certain charts just do not square with the idea of a major top in stocks despite the major indexes’ over bought technicals and the decelerating economic data.

I bought FARO (originally in the Model, but now shifted over to the Spec portfolio) for the gap fill and little rounded pattern. Risk will be managed at 36. Simple. [edit: 4% loss registered]

Speaking of 36, I would view a quick pullback by DDD toward that area as another opportunity for another trade in this one as it has now formed a nice bottoming pattern with a target of 44.

I am also well aware that due to my own bias, I have either messed up or failed to maximize trades in these items: INTC, MSFT, NVDA, GOOG and others. There have been some good trades as well, but the point is that my market bias has really gotten in the way of my personal trading in this somewhat confusing market.

Of course it did not help that these and other leading items looked for all the world like they were leading with a negative divergence, only to snap back hard.

rut.sox.tran
RUT, SOX & TRAN daily

Analytical whipsaw anyone?

Again, all we can do is move forward and take what the market gives. If it seeks to give a stock bull and continued ignominy for the gold “community”, so be it. If it seeks to turn much of the above analysis into a contrary indictor prior to very bearish outcomes, bring it on. This is a challenging market and I just felt like making something of a brain dump this morning for your consideration.

Bottom Line

The precious metals are on a bear market rebound until technical parameters are exceeded. These would be gold 1524, silver 26.10 and HUI 375.

The broad market is projected for a top of some kind, with the definition (and timing) not yet clear. Meanwhile, the market is rotating and many off the beaten path charts continue to look bullish.

Gold bugs (including myself) cannot see how policy makers can print a sustainable secular stock bull market into existence (have the employed 3D Systems or Stratasys to print their models?)*. But time frames are not up to us. The bull phase out of last May has already gone on longer than I thought it might. But there is still the better part of a year left on this cycle if it is to match the previous cyclical bull and the end phase of the secular bull ended in 2000* in their 5 year lifespans.

Let’s respect everything going forward. This is a ‘mixed signals’ market and it demands constant assessment of assumptions. Remember the post I did showing HUI’s big time breakout to blue sky in 2010 as a possible road map for the broad US markets? After the break to new highs Huey spent well over a year grinding around above the breakout point before finally failing in 2012.

*edited from emailed version of this report